Estimation of Panel Group Structure Models with Structural Breaks in Group Memberships and Coefficients

61 Pages Posted: 25 Jun 2020 Last revised: 1 Feb 2021

See all articles by Robin L. Lumsdaine

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; Erasmus University Rotterdam (EUR) - Department of Econometrics; National Bureau of Economic Research (NBER); Tinbergen Institute

Ryo Okui

Seoul National University

Wendun Wang

Erasmus University Rotterdam (EUR) - Department of Econometrics

Date Written: January 31, 2021

Abstract

This paper considers linear panel data models with a grouped pattern of heterogeneity when the latent group membership structure and/or the values of slope coefficients change at a break point. We propose a least squares approach to jointly estimate the break point, group membership structure, and coefficients. The proposed estimators are consistent, and the asymptotic distribution of the coefficient estimators is identical to that under known break point and group structure even when the cross-sectional sample size is much larger than the length of time series. Monte Carlo simulations and an empirical example illustrate the use of the approach and associated inference.

Keywords: Panel data, grouped patterns, structural breaks, group membership change

JEL Classification: C23, C38, C51

Suggested Citation

Lumsdaine, Robin L. and Okui, Ryo and Wang, Wendun, Estimation of Panel Group Structure Models with Structural Breaks in Group Memberships and Coefficients (January 31, 2021). Available at SSRN: https://ssrn.com/abstract=3617416 or http://dx.doi.org/10.2139/ssrn.3617416

Robin L. Lumsdaine

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Ryo Okui (Contact Author)

Seoul National University ( email )

Seoul
Korea, Republic of (South Korea)

Wendun Wang

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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